Suppose that the natural rate of unemployment is 5% and the current inflation rate is 1% per year. To bring the inflation rate down to zero, the actual unemployment rate in the economy would have to be:

Question

Quizplus · Accepted Answer

The correct answer is A because the Phillips curve suggests that to reduce inflation, the unemployment rate must be increased. In this case, the natural rate of unemployment is 5%, and the current inflation rate is 1%. To bring the inflation rate down to zero, the actual unemployment rate would have to be higher than the natural rate, which is 7%.

Suppose That the Natural Rate of Unemployment Is 5% and the Current